Cosmetics maker e.l.f. Beauty (ELF +1.12%) was a market darling a few years ago, as rising revenues and earnings drew investors into the fast-growing brand. The price-to-earnings ratio rose to more than 90x in 2024. Since that peak, the stock has lost roughly two-thirds of its value. Is it time to buy the dip?
The good news from e.l.f. Beauty
Essentially, e.l.f. Beauty imports low-priced cosmetics. That has been a winning formula for the company, as it has posted a long string of quarterly revenue increases. Helping the top line along has been expansion into new markets and new product categories. From a revenue perspective, e.l.f. Beauty has been a great success and continues to be so.
Image source: Getty Images.
At this point, the stock is trading at a price-to-sales ratio of 3.1x, well below its five-year average of 5.3x. It has a price-to-earnings ratio of 45x, well below its five-year average of 73x. And the price-to-book ratio is 4x, again well below the five-year average P/B ratio of 7x. Compared to its own history, e.l.f. Beauty looks cheap.
The bad news from e.l.f. Beauty
The problem with the valuation picture is that on an absolute level, e.l.f. Beauty is still fairly expensive. For comparison, the S&P 500 index (^GSPC 0.61%) currently has a P/E ratio of 28x. Notably, the S&P 500 is still trading near all-time highs. So while e.l.f. Beauty is cheaper than it was, it still isn’t cheap on an absolute basis. Investors with a value focus won’t be interested even after the stock’s deep drawdown.
Today’s Change
(1.12%) $0.81
Current Price
$73.39
Key Data Points
Market Cap
$4.3B
Day’s Range
$71.90 – $75.91
52wk Range
$49.40 – $150.99
Volume
94K
Avg Vol
2.1M
Gross Margin
65.91%
The big issue is that the company’s revenues have continued to grow, but its earnings have become less reliable. A notable headwind has come from rising tariffs, given the company’s import-driven model. The company’s profit margin has declined by 33% over the past three years. That is a worrying trend and suggests the stock may not have as strong a growth trajectory as investors once thought.
Is it time to buy e.l.f. Beauty?
At the end of the day, e.l.f. Beauty is still growing its business at an impressive rate. More aggressive growth investors may be interested in the stock given the recent price pullback, but the shares remain relatively expensive. Most investors are probably better off on the sidelines, at least until the company’s earnings start trending consistently higher, along with its steadily rising sales.
